Budget 2019: Tax planning incentive for middle class income group



The budget 2019 has reduced the tax burden on small tax payers. As per the new budget, those earning up to Rs.5 lakhs annually can avail full tax rebate. Also, individuals having a higher income can also avail tax benefits by claiming tax deductions under different sections.


Piyush Goyal, Interim Finance Minister in his budget speech said that even individuals having a gross income of up to Rs.6.5 lakhs may not have to pay tax if they make specified investment plans. For instance, an individual having an income of Rs. 7 lakhs can be tax free if he invests Rs. 1.5 lakhs under section 80C and invests Rs.50,000 in NPS under section 80CCD(1b).


Till now, only those earning up to 3.5 lakhs a year were eligible for a tax rebate of Rs.2500. The 2019 budget has hiked the rebate to up to Rs.12,500 and raised the eligibility to Rs.5lakhs.Though taxpayers in the lower income group can save up to Rs. 13,000 in tax, individuals with higher income will not be affected by this rebate. It is estimated that around three crore taxpayers will be out of the tax net and it would cost the exchequer about Rs.18,500 crore in revenue.


Have a look at how much an individual can save tax depending on his income.



As it can be seen from above information, the only benefit for individuals in the high income bracket is the Rs.10000 hike in the regular deduction to Rs.50000. It means that a salaried tax payer will save about Rs.3000.This move has been appreciated by many experts as they feel that the impact of standard deduction was reduced last years due to removal of tax exemption to medical reimbursements and transport allowance.


It is believed that the Budget proposals are likely to hamper tax planning. Currently, an individual having an annual income of up to Rs.3.5 lakhs can avail a tax rebate of Rs.2500. However, the rebate ceases to exist for an individual whose annual income exceeds Rs. 3.5 lakhs by even a rupee.


Most taxpayers are unaware that the interest from bonds, fixed deposits or other saving schemes are completely taxable. The interest is usually added to the income and taxed at the normal rate. Such individuals may skip declaring their income in return and claim the rebate. However, the addition of the interest may take the income above Rs.5 lakhs threshold and make the individual ineligible for the rebate.

According to the experts, the Budget proposals may encourage individuals to save aggressively. For instance, an individual can reduce his taxable income to a great extent under the NPS scheme (section 80CCD(2)). In this scheme, about 10% of the basic pay set aside in the NPS by the employer will be tax deductible.


On the other hand, experts also believe that the Budget will make tax compliance easy for taxpayers. However, the budget has nothing great to offer to senior citizens above 60 and 80 years of age. Also, as the basic exemption limit for senior citizens is Rs.5 lakhs, the rebate will not have any effect on them.


Highlights of the budget proposal are:

  • Income Tax slabs will remain the same for FY 2019-20.

  • The tax rebate limit under 87A has increased from Rs. 3.5 lakhs to Rs. 5 lakhs while the maximum limit of the tax rebate increased to Rs.12,500 from the present limit of Rs. 2,500 for taxpayers.

  • TDS limit has been increased from Rs.10,000 to Rs.40,000 on Bank deposits and Post office savings

  • TDS on rent has increased from Rs.1,80,000 to Rs.2,40,000

  • Standard Deduction for salaried people has increased from Rs.40,000 to Rs.50,000

In general, it can be said that the Budget 2019 is a boon for mid-group salaried people.

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